WHAT ARE CHANNEL DESIGN DECISIONS?
CHRISTINE NYANDAT
26 Oct, 2013
Definition: Distribution decisions focus on establishing a system that, at its basic level,
allows customers to gain access and purchase a marketer’s product. However, marketers
may find that getting to the point at which a customer can acquire a product is complicated,
time consuming, and expensive. The bottom line is a marketer’s distribution system must be
both effective (i.e., delivers a good or service to the right place, in the right amount, in the
right condition) and efficient (i.e., delivers at the right time and for the right cost). Yet, as
we will see, achieving these goals takes considerable effort.
In other words: A marketing channel consists of firms that have partnered for their
common food, with each member playing a specialized role.
Why is it important? Channel members add value by bridging the major time, place, and
possession gaps that separate goods and services from those who would use them.
Lecture notes
Distribution decisions are relevant for nearly all types of products. While it is easy to see
how distribution decisions impact physical goods, such as laundry detergent or truck parts,
distribution is equally important for digital goods (e.g., television programming,
downloadable music) and services (e.g., income tax services). In fact, while the Internet is
playing a major role in changing product distribution and is perceived to offer more
opportunities for reaching customers, online marketers still face the same distribution
issues and obstacles as those faced by offline marketers.
In order to facilitate an effective and efficient distribution system many decisions must be
made including (but certainly not limited to):
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Assessing the best distribution channels for getting products to customers
Determining whether a reseller network is needed to assist in the distribution process
Arranging a reliable ordering system that allows customers to place orders
Creating a delivery system for transporting the product to the customer
For tangible and digital goods, establishing facilities for product storage
Analyzing Consumer Needs
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Designing a channel system requires:
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Analyzing consumer needs
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Setting channel objectives
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Identifying major channel alternatives
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Evaluation
Analyzing Consumer Needs
•
Designing a marketing channel starts with finding out what target consumers want
from the channel.
Setting Channel Objectives
In terms of:
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Targeted levels of customer service
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What segments to serve
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Best channels to sue
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Minimizing the cost of meeting customer service requirements
Objectives are influenced by
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Nature of the company
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Marketing intermediaries
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Competitors
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Environment
Identifying Major Alternatives
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In terms of
Business Administration > Introduction to Marketing > Channels
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WHAT ARE CHANNEL DESIGN DECISIONS?
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CHRISTINE NYANDAT
26 Oct, 2013
Types of intermediaries
Number of intermediaries
Responsibilities of each channel member
Identifying Major Alternatives
Types of intermediaries refer to channel members available to carry out channel work.
Examples include
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Company sales force
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Manufacturer’s agency -are independent firms whose sales forces handle related
products from many companies in different regions or industries.
•
Industrial distributors
Identifying Major Alternatives
Number of marketing intermediaries to use at each level
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Intensive distribution - a strategy used by producers of convenience products and
common raw materials in which they stock their products in as many outlets as possible.
•
Exclusive distribution - a strategy in which the producer gives only a limited number
of dealers the exclusive right to distribute products in territories, e.g. Luxury automobiles
and High-end apparel
•
Selective distribution - a strategy when a producer uses more than one but fewer
than all of the intermediaries willing to carry the producer’s products, e.g., Televisions and
Electrical appliances
Identifying Major Alternatives
Responsibilities of Channel Members - Producers and intermediaries need to agree on
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Price policies
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Conditions of sale
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Territorial rights
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Services provided by each party
Evaluating the Major Alternatives
Each alternative should be evaluated against
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Economic criteria compare the likely sales costs and profitability of different channel
members.
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Control criteria refer to channel members’ control over the marketing of the product.
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Adaptive criteria refer to the ability to remain flexible to adapt to environmental
changes.
Designing International Distribution Channels
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Channel systems can vary from country to country.
Must be able to adapt channel strategies to the existing structures within each country
Channel management involves
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Selecting channel members
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Managing channel members
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Motivating channel members
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Evaluating channel members
Business Administration > Introduction to Marketing > Channels
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WHAT ARE CHANNEL DESIGN DECISIONS?
CHRISTINE NYANDAT
26 Oct, 2013
Selecting Channel Members
•
Selecting channel members involves determining the characteristics
that distinguish the better ones by evaluating channel members
– Years in business
– Lines carried
– Profit record
•
Selecting intermediaries that are sales agents involves evaluating
– Number and character of other lines carried
– Size and quality of sales force
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Selecting intermediates that are retail stores that want exclusive or selective
distribution involves evaluating
– Store’s customers
– Store locations
– Growth potential
Managing and Motivating Channel Members
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Partner relationship management (PRM) and supply chain management (SCM)
software are used to
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Forge long-term partnerships with channel members
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Recruit, train, organize, manage, motivate, and evaluate channel members
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The company must sell not only through the intermediaries but also to and with them
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Methods to motivate channel partners are:
Develop a cooperative/collaborative and balanced relationship with the partner
Understand the partner’s customers – their needs, wants, and demands
Understand the partner’s business – operationally and financially and what’s really
important to them
Look at the partner’s needs in terms of customer support, technical support, and
training
Establish clear and agreed upon expectations and goals
Develop recognition programs focusing on the partner’s contributions
Build internal support systems and dedicate resources to the partner
Business Administration > Introduction to Marketing > Channels
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